Hilton Grand Vacations Inc. 10-Q

Item 1. Financial Statements HILTON GRAND VACATIONS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except share data) June 30, 2022 December 31, 2021 (unaudited) ASSETS Cash and cash equivalents $ 374 $ 432 Restricted cash 292 263 Accounts receivable, net of allowance for doubtful accounts of $ 48 and $ 39 413 302 Timeshare financing receivables, net 1,689 1,747 Inventory 1,241 1,240 Property and equipment, net 801 756 Operating lease right-of-use assets, net 60 70 Investments in unconsolidated affiliates 66 59 Goodwill 1,357 1,377 Intangible assets, net 1,358 1,441 Land and infrastructure held for sale — 41 Other assets 481 280 TOTAL ASSETS (variable interest entities - $ 915 and $ 1,100 ) $ 8,132 $ 8,008 LIABILITIES AND EQUITY Accounts payable, accrued expenses and other $ 976 $ 673 Advanced deposits 130 112 Debt, net 2,787 2,913 Non-recourse debt, net 1,024 1,328 Operating lease liabilities 80 87 Deferred revenues 360 237 Deferred income tax liabilities 698 670 Total liabilities (variable interest entities - $ 811 and $ 1,199 ) 6,055 6,020 Commitments and contingencies - see Note 21 Equity: Preferred stock, $ 0.01 par value; 300,000,000 authorized shares, none issued or outstanding as of June 30, 2022 and December 31, 2021 — — Common stock, $ 0.01 par value; 3,000,000,000 authorized shares, 118,501,896 shares issued and outstanding as of June 30, 2022 and 119,904,001 shares issued and outstanding as of December 31, 2021 1 1 Additional paid-in capital 1,626 1,630 Accumulated retained earnings 424 357 Accumulated other comprehensive income 26 — Total equity 2,077 1,988 TOTAL LIABILITIES AND EQUITY $ 8,132 $ 8,008 See notes to unaudited condensed consolidated financial statements. 1 Table of Contents HILTON GRAND VACATIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in millions, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenues Sales of VOIs, net $ 361 $ 76 $ 630 $ 109 Sales, marketing, brand and other fees 161 81 280 134 Financing 64 37 128 74 Resort and club management 124 48 249 93 Rental and ancillary services 171 54 307 86 Cost reimbursements 67 38 133 73 Total revenues 948 334 1,727 569 Expenses Cost of VOI sales 65 21 105 24 Sales and marketing 284 116 527 198 Financing 22 11 41 24 Resort and club management 37 11 73 19 Rental and ancillary services 150 36 282 67 General and administrative 66 30 108 51 Acquisition and integration-related expense 17 14 30 29 Depreciation and amortization 64 12 124 23 License fee expense 32 19 57 33 Impairment (reversal) expense ( 3 ) — — 1 Cost reimbursements 67 38 133 73 Total operating expenses 801 308 1,480 542 Interest expense ( 35 ) ( 17 ) ( 68 ) ( 32 ) Equity in earnings from unconsolidated affiliates 4 4 7 6 Other loss, net ( 2 ) ( 1 ) ( 1 ) ( 2 ) Income (loss) before income taxes 114 12 185 ( 1 ) Income tax (expense) benefit ( 41 ) ( 3 ) ( 61 ) 3 Net income $ 73 $ 9 $ 124 $ 2 Earnings per share: Basic $ 0.60 $ 0.10 $ 1.03 $ 0.02 Diluted $ 0.60 $ 0.10 $ 1.01 $ 0.02 See notes to unaudited condensed consolidated financial statements. 2 Table of Contents HILTON GRAND VACATIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in millions) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net income $ 73 $ 9 $ 124 $ 2 Derivative instrument adjustments, net of tax 10 — 32 — Foreign currency translation adjustments ( 6 ) — ( 6 ) — Other comprehensive income, net of tax 4 — 26 — Comprehensive income $ 77 $ 9 $ 150 $ 2 See notes to unaudited condensed consolidated financial statements. 3 Table of Contents HILTON GRAND VACATIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in millions) Six Months Ended June 30, 2022 2021 Operating Activities Net income $ 124 $ 2 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 124 23 Amortization of deferred financing costs, acquisition premiums and other 25 10 Provision for financing receivables losses 71 28 Impairment expense — 1 Other loss, net 2 2 Share-based compensation 26 18 Deferred income tax expense — 9 Equity in earnings from unconsolidated affiliates ( 7 ) ( 6 ) Net changes in assets and liabilities: Accounts receivable, net ( 73 ) ( 101 ) Timeshare financing receivables, net ( 52 ) 18 Inventory 20 ( 29 ) Purchases and development of real estate for future conversion to inventory ( 1 ) ( 17 ) Other assets ( 159 ) ( 35 ) Accounts payable, accrued expenses and other 290 59 Advanced deposits 17 — Deferred revenues 123 110 Net cash provided by operating activities 530 92 Investing Activities Capital expenditures for property and equipment ( 19 ) ( 4 ) Software capitalization costs ( 16 ) ( 9 ) Net cash used in investing activities ( 35 ) ( 13 ) Financing Activities Issuance of debt — 1,350 Issuance of non-recourse debt 402 — Repayment of debt ( 132 ) ( 55 ) Repayment of non-recourse debt ( 697 ) ( 118 ) Debt issuance costs and discounts ( 7 ) ( 3 ) Repurchase and retirement of common stock ( 78 ) — Payment of withholding taxes on vesting of restricted stock units ( 8 ) ( 5 ) Proceeds from employee stock plan purchases 2 1 Proceeds from stock option exercises 1 6 Other financing activity ( 1 ) ( 1 ) Net cash (used in) provided by financing activities ( 518 ) 1,175 Effect of changes in exchange rates on cash, cash equivalents & restricted cash ( 6 ) — Net (decrease) increase in cash, cash equivalents and restricted cash ( 29 ) 1,254 Cash, cash equivalents and restricted cash, beginning of period 695 526 Cash, cash equivalents and restricted cash, end of period $ 666 $ 1,780 See notes to unaudited condensed consolidated financial statements. 4 Table of Contents HILTON GRAND VACATIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (in millions) Common Stock Additional Paid-in Capital Accumulated Retained Earnings Accumulated Other Comprehensive Income Total Equity Shares Amount Balance as of December 31, 2021 120 $ 1 $ 1,630 $ 357 $ — $ 1,988 Net income — — — 51 — 51 Activity related to share-based compensation — — 4 — — 4 Derivative instrument adjustments, net of tax — — — — 22 22 Balance as of March 31, 2022 120 $ 1 $ 1,634 $ 408 $ 22 $ 2,065 Net income — — — 73 — 73 Activity related to share-based compensation — — 16 — — 16 Foreign currency translation adjustments — — — — ( 6 ) ( 6 ) Derivative instrument adjustments, net of tax — — — — 10 10 Employee stock plan issuance — — 2 — — 2 Repurchase and retirement of common stock ( 2 ) — ( 26 ) ( 57 ) — ( 83 ) Balance as of June 30, 2022 118 $ 1 $ 1,626 $ 424 $ 26 $ 2,077 Common Stock Additional Paid-in Capital Accumulated Retained Earnings Accumulated Other Comprehensive Income Total Equity Shares Amount Balance as of December 31, 2020 84 $ 1 $ 192 $ 181 $ — $ 374 Net loss — — — ( 7 ) — ( 7 ) Activity related to share-based compensation — — 2 — — 2 Balance as of March 31, 2021 84 $ 1 $ 194 $ 174 $ — $ 369 Net income — — — 9 — 9 Activity related to share-based compensation 1 — 18 — — 18 Balance as of June 30, 2021 85 $ 1 $ 212 $ 183 $ — $ 396 See notes to unaudited condensed consolidated financial statements. 5 Table of Contents HILTON GRAND VACATIONS INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1: Organization and Basis of Presentation Our Business Hilton Grand Vacations Inc. (“Hilton Grand Vacations,” “we,” “us,” “our,” “HGV” or the “Company”) is a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts, primarily under the Hilton Grand Vacations brand. During 2021, we acquired Dakota Holdings, Inc., the parent of Diamond Resorts International (the "Diamond Acquisition"), and are in the process of rebranding Diamond properties and sales centers to brands that meet Hilton standards. Our operations primarily consist of selling vacation ownership intervals and vacation ownership interests (collectively, “VOIs” or “VOI”) for ourselves and third parties; financing and servicing loans provided to consumers for their VOI purchases; operating resorts and multi-resort trusts; and managing our points-based Hilton Grand Vacations Club and Hilton Club exchange program (collectively the “Legacy-HGV Club”) in addition to our Diamond points-based clubs (the Legacy-HGV Club and Diamond Clubs (as defined below) are collectively referred to as “Clubs”). As of June 30, 2022, we had 154 properties located in the United States (“U.S.”), Europe, Mexico, the Caribbean, Canada and Japan. A significant number of our properties and VOIs are concentrated in Florida, Nevada, Hawaii, Europe, California, Virginia and Arizona. Diamond Acquisition On August 2, 2021, we completed the Diamond Acquisition by exchanging 100 percent of the outstanding equity interests of Diamond for shares of HGV common stock. Pre-existing HGV shareholders owned approximately 72 percent of the combined company immediately after giving effect of the Diamond Acquisition, with certain funds controlled by Apollo Global Management Inc. (the "Apollo Funds" or, "Apollo") and other minority shareholders, who previously owned 100 percent of Diamond, holding the remaining, approximately 28 percent at the time the Diamond Acquisition was completed. Diamond also operates in the hospitality and VOI industry, with a worldwide resort network of global vacation destinations. Diamond’s portfolio consists of resort properties that we manage, are included in one of Diamond's single- and multi-use trusts (collectively, the "Diamond Collections" or "Collections"), or are Diamond branded resorts in which we own inventory, as well as affiliated resorts and hotels, which we do not manage, and which do not carry the Diamond brand but are a part of Diamond's network and, through THE Club® and other Club offerings (the “Diamond Clubs”), are available for its members to use as vacation destinations. The unaudited condensed consolidated financial statements in this report include Diamond’s results of operations beginning on August 2, 2021. We refer to Diamond's business and operations that we acquired as "Legacy-Diamond", and our business and operations that existed both prior to and following the Diamond Acquisition as "Legacy-HGV." See Note 3: Diamond Acquisition for more information. Basis of Presentation The unaudited condensed consolidated financial statements presented herein include 100 percent of our assets, liabilities, revenues, expenses and cash flows as well as all entities in which we have a controlling financial interest. Our accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. All material intercompany transactions and balances have been eliminated in consolidation. The unaudited condensed consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements presented in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Although we believe the disclosures made are adequate to prevent information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of and for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the SEC on March 1, 2022. 6 Table of Contents The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and, accordingly, ultimate results could differ from those estimates. Interim results are not necessarily indicative of full year performance. The determination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of rights held by other interests. If the entity is considered to be a variable interest entity (“VIE”), we determine whether we are the primary beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interests in the entity. We consolidate entities when we own more than 50 percent of the voting shares of a company or otherwise have a controlling financial interest. The consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S. GAAP. Note 2: Summary of Significant Accounting Policies Reclassifications Certain prior period amounts in the unaudited condensed consolidated financial statements have been reclassified to conform to the current period presentation with no effect on previously reported total assets and total liabilities, net income or stockholders’ equity. Recently Issued Accounting Pronouncements Accounting Standards Not Yet Adopted In March 2022, the FASB issued Accounting Standards Update 2022-02 (“ASU 2022-02”), Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . ASU 2022-02 provides, under Issue 2 - Vintage Disclosures, that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. For financing receivables, the vintage disclosure is to present the amortized cost basis by credit quality indicator and class of financing receivable for the year of origination. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and is to be applied prospectively. We are currently evaluating the effects of this ASU to our disclosures. Note 3: Diamond Acquisition On August 2, 2021, (the “Acquisition Date”), we completed the Diamond Acquisition by exchanging 100 percent of the outstanding equity interests of Diamond to HGV common shares. Following the closing of the Diamond Acquisition, pre-existing HGV shareholders owned approximately 72 percent of the combined company after giving effect to the Diamond Acquisition, with Apollo Funds and other minority shareholders holding the remaining approximately 28 percent at the time the Diamond Acquisition was completed. Diamond is a leader in the vacation ownership industry focused on the infusion of hospitality and experiences through the full life cycle of an owner or members' life cycle relationship with Diamond. This strategic combination creates a more expansive industry offering, leveraging HGV's strong brand and net owner growth along with Diamond's diverse network of locations and strength in experiential offerings. The acquisition also diversifies our product offerings and allows us to expand our customer demographic. On the Acquisition Date, shareholders of Diamond received 0.32 shares of our common stock for each share of Diamond common stock, totaling approximately 28 percent of our total common shares outstanding. Additionally, in connection with the Diamond Acquisition, HGV repaid certain existing indebtedness of Diamond. 7 Table of Contents The following table presents the fair value of each class of consideration transferred in relation to the Diamond Acquisition at the Acquisition Date: ($ in millions, except stock price amounts) HGV common stock shares issued for outstanding Diamond shares 33.93 HGV common stock price as of Acquisition Date (1) 40.71 Stock purchase price $ 1,381 Repayment of Legacy-Diamond debt $ 2,029 Total consideration transferred $ 3,410 (1) Represents the average of the opening and closing price of HGV stock on August 2, 2021. Preliminary Fair Values of Assets Acquired and Liabilities Assumed We accounted for the Diamond Acquisition as a business combination, which requires us to record the assets acquired and liabilities assumed at fair value as of the Acquisition Date. The preliminary fair values of the assets acquired and liabilities assumed, which are presented in the table below, and the related preliminary acquisition accounting are based on management’s estimates and assumptions, as well as information compiled by management, including the books and records of Diamond. Our estimates and assumptions are subject to change during the measurement period, not to exceed one year from the Acquisition Date. The magnitude of the Diamond Acquisition could necessitated the need to use the full one-year measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the Acquisition Date. The final values may also result in changes to amortization expense related to intangible assets and depreciation expense related to property and equipment, among other changes. Any potential adjustments made could be material in relation to the values presented in the table below. As of June 30, 2022, the primary areas of the purchase price allocation that are not yet finalized include the following: (1) finalizing the review and valuation of acquired undeveloped land, property and equipment (including key assumptions, inputs and estimates) and assigning the remaining useful lives to the depreciable assets; (2) finalizing the review of accounts receivable, including the evaluation of which receivables are purchased credit deteriorated assets; (3) 8 Table of Contents finalizing the review and valuation of other acquired assets and assumed liabilities; and (4) finalizing our estimate of the impact of purchase accounting on deferred income tax liabilities. ($ in millions) Preliminary Amounts Recognized as of the Acquisition Date Assets acquired Cash and cash equivalents $ 310 Restricted cash 127 Accounts receivable, net of allowance for doubtful accounts 97 Timeshare financing receivables, net 825 Inventory 497 Property and equipment, net 298 Operating lease right-of-use assets, net 32 Intangible assets, net 1,429 Other assets 250 Total assets acquired $ 3,865 Liabilities assumed Accounts payable, accrued expenses and other $ 485 Non-recourse debt, net 660 Operating lease liabilities 34 Advanced deposits 4 Deferred revenues 140 Deferred income tax liabilities 489 Total liabilities assumed $ 1,812 Net assets acquired $ 2,053 Total consideration transferred $ 3,410 Goodwill (1) $ 1,357 (1) Goodwill is calculated as total consideration transferred less net assets acquired and it primarily represents the value that we expect to obtain from synergies and growth opportunities from our combined Company post-acquisition. The majority of goodwill is not expected to be deductible for tax purposes. The measurement period adjustments recorded during the quarter ended June 30, 2022 resulted from changes to our estimates of the fair value of the acquired assets and assumed liabilities based on finalizing the valuations of operating lease right-of-use asset and related lease liabilities valuation and capitalized software. These resulted in a net adjustment to goodwill for the period of $ 6 million, net of tax impacts of adjustments. The measurement period adjustments recorded during the quarter ended March 31, 2022 resulted from changes to our estimates of the fair value of the acquired assets and assumed liabilities based on a revision to our valuation of insurance receivables given the ultimate determination of proceeds related to preacquisition business interruption insurance claims. The measurement period adjustments recognized include an adjustment to increase accounts receivable, net of allowance for doubtful accounts, for pre-acquisition contingencies, and the related tax impacts increasing deferred income tax liabilities. These resulted in a net adjustment to goodwill for the period of $ 26 million. The prior period net income effect associated with the measurement period adjustments recorded during the six months ended June 30, 2022 is immaterial. Timeshare Financing Receivables We acquired timeshare financing receivables which consist of loans to customers who purchased vacation ownership products and chose to finance their purchases. These timeshare financing receivables are collateralized by the underlying VOIs and generally have 10 -year amortizing repayment terms. We estimated the fair value of the timeshare 9 Table of Contents financing receivables using a discounted cash flow model, which calculated a present value of expected future risk-adjusted cash flows over the remaining term of the respective timeshare financing receivables. We do not expect any material changes to the provisional estimates. For purposes of our allocation, we have considered all acquired receivables to be purchase credit deteriorated assets. See Note 7: Timeshare Financing Receivables for additional information. Acquired timeshare financing receivables with credit deterioration as of the Acquisition Date were as follows: ($ in millions) As of August 2, 2021 Purchase price $ 825 Allowance for credit losses 512 Premium attributable to other factors ( 97 ) Par value $ 1,240 Inventory We acquired inventory which primarily consists of completed unsold VOIs and undeveloped land. We preliminarily estimated the value of acquired inventory using a discounted cash flows method, which included an estimate of cash flows expected to be generated from the sale of VOIs. Significant estimates and assumptions impacting the fair value of the acquired inventory that are subjective and/or require complex judgments include our estimates of operating costs and margins, and the discount rate. Certain other estimates and assumptions impacting the fair value of the acquired inventory involving less subjective and/or less complex judgments include: short-term and long-term revenue growth rates, capital expenditures, tax rates and other factors impacting the discounted cash flows. We do not expect any material changes to the provisional estimates for completed and unsold VOIs. Property and Equipment We acquired property and equipment, which includes land, building and leasehold improvements, furniture and fixtures and construction in progress. We preliminarily estimated the value of the majority of property and equipment using a mix of cost, market and discounted cash flow approaches, which included estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the resorts. Certain property and equipment assets were preliminarily valued at carrying value, which is our best estimate of fair value at this time given the information available to us. As of June 30, 2022, we are continuing to assess the market assumptions and property conditions, which could result in changes to these preliminary values. Goodwill We recognized goodwill of approximately $ 1.4 billion in connection with the Diamond Acquisition. We have allocated the acquired goodwill to our segments, Real Estate Sales and Financing and Resort Operations and Club Management, as indicated in the table below. Our allocations may change throughout the measurement period as we continue to finalize the fair value of assets acquired and liabilities assumed in the Diamond Acquisition. Real Estate Sales and Financing Segment Resort Operations and Club Management Segment Total Consolidated Goodwill $ 1,001 $ 356 $ 1,357 10 Table of Contents Intangible Assets The following table presents our preliminary estimates of the fair values of the acquired Diamond’s identified intangible assets and their related estimated remaining useful lives: Estimated Fair Value ($ in millions) Estimated Useful Life (in years) Trade name $ 18 1.5 Management contracts 1,251 35.4 Club member relationships 139 14.4 Computer software 21 1.5 Total intangible assets $ 1,429 We estimated the fair value of Diamond’s trade name using the relief-from-royalty method, which applies an estimated royalty rate to forecasted future cash flows, discounted to present value. We estimated the value of management contracts and member relationships using the multi-period excess earnings method, which is a variation of the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash flows attributable to the intangible asset. Significant estimates and assumptions impacting the fair value of the acquired management contracts intangible that are subjective and/or require complex judgments include our estimates of operating costs and margins, and the discount rate. Certain other estimates and assumptions impacting the fair value of the acquired management contracts intangible involving less subjective and/or less complex judgments include: short-term and long-term revenue growth rates, attrition rates, capital expenditures, tax rates and other factors impacting the discounted cash flows. We do not expect any material changes to the provisional estimates for trade names, management contracts, and club member relationships, other than as a result of working capital adjustments. Deferred Revenue Deferred revenue primarily relates to deferred sales incentives revenues, primarily related to Bonus Points, which are deferred and recognized upon redemption; and Club membership fees, which are deferred and recognized over the terms of the applicable contract term or membership on a straight-line basis. Additionally, deferred revenue includes maintenance fees collected from owners, in certain cases, which are earned by the relevant property owners' association over the applicable period. We preliminarily estimated the fair value of the deferred revenue at the carrying value of such liabilities as of the Acquisition Date. We do not expect any material changes to the provisional estimates. Deferred Income Taxes Deferred income taxes primarily relate to the fair value of assets and liabilities acquired from Diamond, including timeshare financing receivables, inventory, property and equipment, intangible assets, and debt. We preliminarily estimated deferred income taxes based on statutory rates in the jurisdictions of the legal entities where the acquired assets and liabilities are recorded. We are continuing to assess the tax rates used, and we will update our estimate of deferred income taxes based on changes to our preliminary valuations of the related assets and liabilities and refinement of the effective tax rates, which could result in changes to these preliminary values. Debt As part of the acquisition and consideration transferred, we paid off $ 2,029 million of Diamond’s existing corporate debt, accrued interest and early termination penalties. Non-Recourse Debt We estimated the fair value of the securitized debt from VIEs and warehouse loan facilities, using a discounted cash flow model under the income approach. The significant assumptions in our analysis include default rates, prepayment rates, bond interest rates and other structural factors. We do not expect any material changes to the provisional estimates. 11 Table of Contents Lease Obligations We have recorded liabilities for those operating leases assumed in connection with the Diamond Acquisition with a remaining term in excess of a year. We measured the lease liabilities assumed at the present value of the remaining contractual lease payments based on the guidance in ASC 842 and using a discount rate determined as of the Acquisition Date. The right-of-use assets for such leases were measured at an amount equal to the lease liabilities, adjusted for favorable or unfavorable terms of the lease when compared with market terms. We do not expect any material changes to the provisional estimates. Pro Forma Results of Operations The following unaudited pro forma information presents the combined results of operations of HGV and Diamond as if we had completed the Diamond Acquisition on January 1, 2021, the first day of our prior fiscal year, but using our preliminary fair values of assets and liabilities as of the Acquisition Date. These unaudited pro forma results do not reflect any synergies from operating efficiencies. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Diamond Acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations. ($ in millions, except per share data) Six Months Ended June 30, 2021 Revenue $ 1,155 Net loss ( 87 ) Note 4: Revenue from Contracts with Customers Disaggregation of Revenue The following tables show our disaggregated revenues by product and segment from contracts with customers. We operate our business in the following two segments: (i) Real estate sales and financing and (ii) Resort operations and club management . Please refer to Note 20: Business Segments below for more details related to our segments. ($ in millions) Three Months Ended June 30, Six Months Ended June 30, Real Estate Sales and Financing Segment 2022 2021 2022 2021 Sales of VOIs, net $ 361 $ 76 $ 630 $ 109 Sales, marketing, brand and other fees 161 81 280 134 Interest income 54 31 109 62 Other financing revenue 10 6 19 12 Real estate sales and financing segment revenues $ 586 $ 194 $ 1,038 $ 317 ($ in millions) Three Months Ended June 30, Six Months Ended June 30, Resort Operations and Club Management Segment 2022 2021 2022 2021 Club management $ 51 $ 29 $ 102 $ 56 Resort management 73 19 147 37 Rental (1) 155 50 279 80 Ancillary services 16 4 28 6 Resort operations and club management segment revenues $ 295 $ 102 $ 556 $ 179 (1) Excludes intersegment eliminations. See Note 20: Business Segments for additional information. 12 Table of Contents Contract Balances The following table provides information on our accounts receivable from contracts with customers which are included in Accounts receivable, net on our unaudited condensed consolidated balance sheets: ($ in millions) June 30, 2022 December 31, 2021 Receivables $ 273 $ 202 The following table presents the composition of our contract liabilities: ($ in millions) June 30, 2022 December 31, 2021 Contract liabilities: Advanced deposits $ 130 $ 112 Deferred sales of VOIs of projects under construction 87 34 Club dues and Legacy-HGV Club activation fees 131 91 Bonus Point incentive liability (1) 53 44 (1) Amounts related to the Bonus Point incentive liability are included in Accounts payable, accrued expenses and other on our unaudited condensed consolidated balance sheets. This liability is comprised of unrecognized revenue for incentives from VOI sales and sales and marketing expenses in conjunction with our fee-for-service arrangements. Revenue earned for three and six months ended June 30, 2022 that was included in the contract liabilities balance at December 31, 2021 was approximately $ 54 million and $ 98 million, respectively. Our accounts receivables that relate to our contracts with customers includes amounts associated with our contractual right to consideration for completed performance obligations related primarily to our fee-for-service arrangements and homeowners’ associations management agreements and are settled when the related cash is received. Accounts receivable are recorded when the right to consideration becomes unconditional and is only contingent on the passage of time. Refer to Note 7: Timeshare Financing Receivables for information on balances and changes in balances during the period related to our timeshare financing receivables. Contract assets relate to incentive fees that can be earned for meeting certain targets on sales of VOIs at properties under our fee-for-service arrangements; however, our right to consideration is conditional upon completing the requirements of the annual incentive fee period. There were no contract assets as of June 30, 2022 and December 31, 2021, respectively. Contract liabilities include payments received or due in advance of satisfying our performance obligations. Such contract liabilities include advance deposits received on prepaid vacation packages for future stays at our resorts, deferred revenues related to sales of VOIs of projects under construction, Club activation fees and annual dues and the liability for Bonus Points awarded to our customers for purchase of VOIs at our properties or properties under our fee-for-service arrangements that may be redeemed in the future. In addition to the contract liabilities included herein, we also have deferred revenue of $ 142 million and $ 112 million as of June 30, 2022 and December 31, 2021, respectively. This additional deferred revenue balance includes $ 44 million and $ 51 million for bonus points and vacation package deferred revenue, $ 33 million and $ 10 million in deferred property insurance, $ 27 million and $ 14 million in deferred maintenance fees and $ 38 million and $ 37 million in other deferred revenue as of June 30, 2022 and December 31, 2021, respectively. Transaction Price Allocated to Remaining Performance Obligations Transaction price allocated to remaining performance obligations represents contract revenue that has not yet been recognized. Our contracts with remaining performance obligations primarily include (i) sales of VOIs under construction, (ii) Legacy-HGV Club activation fees paid at closing of a VOI purchase, (iii) customers’ advanced deposits on prepaid vacation packages and (iv) Bonus Points that may be redeemed in the future. 13 Table of Contents The following table represents the deferred revenue, cost of VOI sales and direct selling costs from sales of VOIs related to projects under construction as of June 30, 2022 and December 31, 2021: ($ in millions) June 30, 2022 December 31, 2021 Sales of VOIs, net $ 87 $ 34 Cost of VOI sales (1) 30 12 Sales and marketing expense 13 5 (1) Includes anticipated Cost of VOI sales related to inventory associated with Sales of VOIs under construction. We expect to recognize the revenue, costs of VOI sales and direct selling costs related to the projects under construction as of June 30, 2022 upon their completion in 2022. The following table includes the remaining transaction price related to Advanced deposits, and Legacy-HGV Club activation fees and Bonus Points as of June 30, 2022: ($ in millions) Remaining Transaction Price Recognition Period Recognition Method Advanced deposits $ 130 18 months Upon customer stays Legacy-HGV Club activation fees 64 7 years Straight-line basis over average inventory holding period Bonus Points 53 18 - 30 months Upon redemption Note 5: Restricted Cash Restricted cash was as follows: ($ in millions) June 30, 2022 December 31, 2021 Escrow deposits on VOI sales $ 186 $ 152 Reserves related to non-recourse debt (1) 63 67 Other (2) 43 44 $ 292 $ 263 (1) See Note 13: Debt & Non-recourse Debt for further discussion. (2) Other restricted cash primarily includes cash collected on behalf of HOAs, deposits related to servicer arrangements and other deposits. Note 6: Accounts Receivable Accounts receivable within the scope of ASC 326 are measured at amortized cost. The following table represents our accounts receivable, net of allowance for credit losses: ($ in millions) June 30, 2022 December 31, 2021 Fee-for-service commissions $ 92 $ 73 Real estate and financing 55 51 Resort and club operations 117 76 Tax receivables 54 95 Insurance claims receivable 80 — Other receivables (1) 15 7 Total $ 413 $ 302 (1) Primarily includes individually insignificant allowances recognized in the ordinary course of business. 14 Table of Contents Our accounts receivable are generally due within one year of origination. We use delinquency status and economic factors such as credit quality indicators to monitor our receivables within the scope of ASC 326 and use these as a basis for how we develop our expected loss estimates. We sell VOIs on behalf of third-party developers using the Hilton Grand Vacations brand in exchange for sales, marketing and brand fees. We use historical losses and economic factors as a basis to develop our allowance for credit losses. Under these fee-for-service arrangements, we earn commission fees based on a percentage of total interval sales. Additionally, the terms of these arrangements include provisions requiring the reduction of fees earned for defaults and cancellations. The changes in our allowance for fee-for-service commissions were as follows during the period from December 31, 2021 to June 30, 2022: ($ in millions) Balance as of December 31, 2021 $ 18 Current period provision for expected credit losses 5 Write-offs charged against the allowance ( 9 ) Balance at June 30, 2022 $ 14 In addition to the fee-for-service commission allowance, we have various allowances for our accounts receivable to account for expected losses related to club dues, maintenance fees, trade accounts receivable, sales of VOIs, and marketing packages. 15 Table of Contents Note 7: Timeshare Financing Receivables We define our timeshare financing receivables portfolio segments as (i) originated and (ii) acquired. The following table presents the components of each portfolio segment by class of timeshare financing receivables: Originated (2) Acquired (2) ($ in millions) June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021 Securitized $ 649 $ 587 $ 419 $ 523 Unsecuritized (1) 884 810 436 515 Timeshare financing receivables, gross $ 1,533 $ 1,397 $ 855 $ 1,038 Unamortized non-credit acquisition premium (3) — — 54 74 Less: allowance for financing receivables losses ( 348 ) ( 280 ) ( 405 ) ( 482 ) Timeshare financing receivables, net $ 1,185 $ 1,117 $ 504 $ 630 (1) Includes amounts used as collateral to secure a non-recourse revolving timeshare receivable credit facility ("Timeshare Facility") as well as amounts held as future collateral for securitization activities. (2) Acquired timeshare financing receivables include all timeshare financing receivables of Legacy-Diamond as of the Acquisition Date. Originated timeshare financing receivables include all Legacy-HGV timeshare financing receivables and Legacy-Diamond timeshare financing receivables originated after the Acquisition Date. (3) Non-credit premium of $ 97 million was recognized at the Acquisition Date, of which $ 54 million remains unamortized as of June 30, 2022. In April 2022, we completed a securitization of $ 246 million of gross timeshare financing receivables and issued approximately $ 107 million of 3.61 percent notes, $ 84 million of 4.10 percent notes, $ 22 million of 4.69 percent notes, and $ 33 million of 6.79 percent notes due June 2034. The securitization transaction did not qualify as a sale and, accordingly, no gain or loss was recognized. The transaction is considered a secured borrowing; therefore, the proceeds from the transaction are presented as non-recourse debt. The proceeds were primarily used to pay down the remaining borrowings of one of our conduit facilities and general corporate operating expenses. See Note 13: Debt and Non-recourse Debt for additional information. As of June 30, 2022 and December 31, 2021, we had timeshare financing receivables with a carrying value of $ 155 million and $ 131 million, respectively, securing the Timeshare Facility and one additional conduit facility in anticipation of future financing activities. We record an estimate of variable consideration for estimated defaults as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale. We record the difference between the timeshare financing receivable and the variable consideration included in the transaction price for the sale of the related VOI as an allowance for financing receivables and record the receivable net of the allowance. For the six months ended June 30, 2022, we recorded an adjustment to our estimate of variable consideration of $ 71 million. We recognize interest income on our timeshare financing receivables as earned. As of June 30, 2022 and December 31, 2021, we had interest receivable outstanding of $ 10 million and $ 9 million, respectively, on our originated timeshare financing receivables, which represent all Legacy-HGV timeshare financing receivables and timeshare financing receivables originated by Legacy-Diamond subsequent to the Acquisition Date. As of June 30, 2022 and December 31, 2021, we had interest receivable outstanding of $ 5 million and $ 7 million on our acquired timeshare financing receivables, which represents all timeshare financing receivables of Legacy-Diamond as of the Acquisition Date. Interest receivable is included in Other Assets within our balance sheets. The interest rate charged on the notes correlates to the risk profile of the customer at the time of purchase and the percentage of the purchase that is financed, among other factors. As of June 30, 2022, our originated timeshare financing receivables had interest rates ranging from 1.5 percent to 25.8 percent, a weighted-average interest rate of 13.9 percent, a weighted-average remaining term of 8.1 years and maturities through 2037. Our acquired timeshare financing receivables had interest rates ranging from 2.0 percent to 25.0 percent, a weighted-average interest rate of 15.6 percent, a weighted-average remaining term of 7.6 years and maturities through 2032. Acquired Timeshare Financing Receivables with Credit Deterioration As part of the Diamond Acquisition, we acquired existing portfolios of timeshare financing receivables. Acquired timeshare financing receivables include all timeshare financing receivables of Legacy-Diamond as of the Acquisition Date and were deemed to be purchase credit deteriorated financial assets. These notes receivable were initially recognized at their purchase price, represented by the acquisition date fair value, and subsequently “grossed-up” by our acquisition date assessment of the allowance for credit losses. The difference over which par value of the acquired purchased credit 16 Table of Contents deteriorated assets exceeds the purchase price plus the initial allowance for credit losses is reflected as a non-credit premium and is amortized as a reduction to interest income under the effective interest method. The fair value of our acquired timeshare financing receivables as of the Acquisition Date was determined using a discounted cash flow method, which calculated a present value of expected future cash flows based on scheduled principal and interest payments over the term of the respective timeshare financing receivables, while considering anticipated defaults and early repayments based on historical experience. Consequently, the fair value of the acquired timeshare financing receivables recorded on our balance sheet as of the Acquisition Date included an estimate of expected credit losses which became the historical cost basis for that portfolio going forward. The allowance for credit losses for our acquired timeshare financing receivables is remeasured at each period end and takes into consideration an estimated measure of anticipated defaults and early repayments. We consider historical Legacy-Diamond timeshare financing receivables performance and the current economic environment in the re-measurement of the allowance for credit losses for our acquired timeshare financing receivables. Subsequent changes to the allowance for credit losses are recorded as additions to or reversals of credit losses in our consolidated statements of operations through provision for credit losses. Our acquired timeshare financing receivables as of June 30, 2022 mature as follows: Acquired Timeshare Financing Receivables ($ in millions) Securitized Unsecuritized Total Year 2022 (remaining) $ 22 $ 16 $ 38 2023 46 35 81 2024 50 38 88 2025 54 43 97 2026 57 47 104 Thereafter 190 257 447 $ 419 $ 436 $ 855 Originated Timeshare Financing Receivables Originated timeshare financing receivables represent all Legacy-HGV timeshare financing receivables and timeshare financing receivables originated by Legacy-Diamond subsequent to the Acquisition Date. Our originated timeshare financing receivables as of June 30, 2022 mature as follows: Originated Timeshare Financing Receivables ($ in millions) Securitized Unsecuritized Total Year 2022 (remaining) $ 42 $ 36 $ 78 2023 85 63 148 2024 87 71 158 2025 87 78 165 2026 83 86 169 Thereafter 265 550 815 $ 649 $ 884 $ 1,533 17 Table of Contents Allowance for Financing Receivables Losses The changes in our allowance for financing receivables losses were as follows: June 30, 2022 ($ in millions) Originated Acquired Balance as of December 31, 2021 $ 280 $ 482 Provision for financing receivables losses (1) 71 — Write-offs ( 37 ) ( 60 ) Upgrades (2) 34 ( 17 ) Balance as of June 30, 2022 $ 348 $ 405 June 30, 2021 ($ in millions) Originated Acquired Balance as of December 31, 2020 $ 211 $ — Provision for financing receivables losses (1) 28 — Write-offs ( 36 ) — Balance as of June 30, 2021 $ 203 $ — (1) Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables. (2) Represents the initial change in allowance resulting from upgrades of Acquired loans. Upgraded Acquired loans and their related allowance are included in the Originated portfolio segment. Credit Quality of Timeshare Financing Receivables Legacy-HGV Timeshare Financing Receivables We evaluate this portfolio collectively for purposes of estimating variable consideration, since we hold a large group of homogeneous timeshare financing receivables which are individually immaterial. We monitor the collectability of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for estimating expected defaults and determining our allowance for financing receivables losses on our timeshare financing receivables. For static pool analysis, we use certain key dimensions to stratify our portfolio, including FICO scores, equity percentage at the time of sale and certain other factors. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio. Our gross balances by average FICO score of our Legacy-HGV timeshare financing receivables were as follows: Legacy-HGV Timeshare Financing Receivables ($ in millions) June 30, 2022 December 31, 2021 FICO score 700+ $ 706 $ 703 600-699 252 248 <600 35 35 No score (1) 162 166 $ 1,155 $ 1,152 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. 18 Table of Contents The following table details our Legacy-HGV timeshare financing receivables by the origination year and average FICO score as of June 30, 2022: ($ in millions) 2022 2021 2020 2019 2018 Prior Total FICO score 700+ $ 171 $ 179 $ 62 $ 109 $ 74 $ 111 $ 706 600-699 52 66 24 39 27 44 252 <600 7 9 4 6 3 6 35 No score (1) 23 34 21 31 21 32 162 $ 253 $ 288 $ 111 $ 185 $ 125 $ 193 $ 1,155 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. We apply payments we receive for loans, including those in non-accrual status, to amounts due in the following order: servicing fees; interest; principal; and late charges. Once a loan is 91 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We resume interest accrual for loans for which we had previously ceased accruing interest once the loan is less than 91 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the loan is 121 days past due and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit. As of June 30, 2022 and December 31, 2021, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $ 70 million and $ 83 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance: Legacy-HGV Timeshare Financing Receivables June 30, 2022 ($ in millions) Securitized Unsecuritized Total Current $ 468 $ 601 $ 1,069 31 - 90 days past due 5 11 16 91 - 120 days past due 1 2 3 121 days and greater past due 2 65 67 $ 476 $ 679 $ 1,155 Legacy-HGV Timeshare Financing Receivables December 31, 2021 ($ in millions) Securitized Unsecuritized Total Current $ 569 $ 488 $ 1,057 31 - 90 days past due 6 6 12 91 - 120 days past due 2 2 4 121 days and greater past due 2 77 79 $ 579 $ 573 $ 1,152 Legacy-Diamond Timeshare Financing Receivables We evaluate this portfolio collectively for purposes of estimating variable consideration, since we hold a large group of homogeneous timeshare financing receivables which are individually immaterial. We monitor the collectability of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for estimating expected defaults and determining our allowance for financing receivables losses on our timeshare financing receivables. For static pool analysis, we use certain key dimensions to stratify our portfolio, including FICO scores, equity percentage at the time of sale and certain other factors. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio. 19 Table of Contents Our gross balances by average FICO score of our Legacy-Diamond acquired and originated timeshare financing receivables were as follows: Legacy-Diamond Acquired Timeshare Financing Receivables ($ in millions) June 30, 2022 December 31, 2021 FICO score 700+ $ 454 $ 601 600-699 318 356 <600 65 70 No score (1) 18 11 $ 855 $ 1,038 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. Legacy-Diamond Originated Timeshare Financing Receivables ($ in millions) June 30, 2022 December 31, 2021 FICO score 700+ $ 240 $ 172 600-699 114 60 <600 21 11 No score (1) 3 2 $ 378 $ 245 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. The following tables detail our Legacy-Diamond acquired and originated timeshare financing receivables by the origination year and average FICO score as of June 30, 2022: Legacy-Diamond Acquired Timeshare Financing Receivables ($ in millions) 2022 2021 2020 2019 2018 Prior Total FICO score 700+ $ — $ 83 $ 98 $ 115 $ 76 $ 82 $ 454 600-699 — 54 59 81 48 76 318 <600 — 12 15 14 6 18 65 No score (1) — 2 5 2 1 8 18 $ — $ 151 $ 177 $ 212 $ 131 $ 184 $ 855 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. Legacy-Diamond Originated Timeshare Financing Receivables ($ in millions) 2022 2021 2020 2019 2018 Prior Total FICO score 700+ $ 143 $ 97 $ — $ — $ — $ — $ 240 600-699 63 51 — — — — 114 <600 11 10 — — — — 21 No score (1) 2 1 — — — — 3 $ 219 $ 159 $ — $ — $ — $ — $ 378 (1) Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. The accrued interest on our Legacy-Diamond timeshare financing receivables is accrued based on the contractual provisions of the loan documents, which is suspended at the earlier of (i) the customer’s account becoming over 90 days 20 Table of Contents delinquent, or (ii) the completion of cancellation or foreclosure proceedings. Once suspended, we reverse all prior recognized interest income as well. We resume interest accrual for receivables for which we had previously ceased accruing interest once the receivable is less than 91 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the receivable is 121 days past due and, subsequently, we write off the uncollectible balance against the reserve once the foreclosure process is complete and we become owner of the deed for the foreclosed unit. As of June 30, 2022 and December 31, 2021, we had ceased accruing interest on Legacy-Diamond timeshare financing receivables with an aggregate principal balance of $ 374 million and $ 369 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance: Legacy-Diamond Timeshare Financing Receivables June 30, 2022 ($ in millions) Securitized Unsecuritized Total Current $ 554 $ 268 $ 822 31 - 90 days past due 22 15 37 91 - 120 days past due 6 6 12 121 days and greater past due 10 352 362 $ 592 $ 641 $ 1,233 Legacy-Diamond Timeshare Financing Receivables December 31, 2021 ($ in millions) Securitized Unsecuritized Total Current $ 496 $ 385 $ 881 31 - 90 days past due 15 18 33 91 - 120 days past due 6 5 11 121 days and greater past due 14 344 358 $ 531 $ 752 $ 1,283 Note 8: Inventory Inventory was comprised of the following: ($ in millions) June 30, 2022 December 31, 2021 Completed unsold VOIs $ 1,201 $ 1,219 Construction in process 39 20 Land, infrastructure and other 1 1 $ 1,241 $ 1,240 The table below presents costs of sales true-ups relating to VOI products and the related impacts to the carrying value of inventory. Six Months Ended June 30, ($ in millions) 2022 2021 Cost of sales true-up (1) $ 9 $ 4 (1) For the six months ended June 30, 2022 and 2021, respectively, the cost of sales true-up reduced costs of VOI sales and increased inventory. Shown below are expenses incurred, recorded in Cost of VOI sales, related to granting credit to customers for their existing ownership when upgrading into fee-for service projects: 21 Table of Contents Three Months Ended June 30, Six Months Ended June 30, ($ in millions) 2022 2021 2022 2021 Cost of VOI sales related to fee-for-service upgrades $ 2 $ 2 $ 4 $ 3 Note 9: Property and Equipment Property and equipment were comprised of the following: ($ in millions) June 30, 2022 December 31, 2021 Land $ 241 $ 193 Building and leasehold improvements 415 405 Furniture and equipment 82 82 Construction in progress 241 231 979 911 Accumulated depreciation ( 178 ) ( 155 ) $ 801 $ 756 Land increased by $ 48 million as of June 30, 2022 from December 31, 2021. During the second quarter of 2022, we concluded that certain parcels of land and infrastructure which were previously classified as held for sale, no longer met the held for sale criteria. Thus, these assets were reclassified to property and equipment as a non-cash transfer. The assets were measured at fair value as of June 30, 2022 as assets held for sale prior to reclassification, principally utilizing market approaches for the land parcels and the cost approach for infrastructure. For the three and six months ended June 30, 2022, we recorded a reversal of impairment expense of $ 7 million corresponding with this reclassification . Note 10: Consolidated Variable Interest Entities As of June 30, 2022 and December 31, 2021, we consolidated 10 variable interest entities (“VIEs”) and 11 VIEs, respectively. The activities of these entities are limited primarily to purchasing qualifying non-recourse timeshare financing receivables from us and issuing debt securities and/or borrowing under a debt facility to facilitate such purchases. The timeshare financing receivables held by these entities are not available to our creditors and are not our legal assets, nor is the debt that is securitized through these entities a legal liability to us. We have determined that we are the primary beneficiaries of all VIEs as we have the power to direct the activities that most significantly affect their economic performance. We are also the servicer of these timeshare financing receivables and we often replace or repurchase timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. Only the assets of our VIEs are available to settle the obligations of the respective entities. As part of the Diamond Acquisition, we acquired the variable interests in the entities associated with Diamond’s outstanding timeshare financing receivables securitization transactions and conduit facilities. They have been aggregated for disclosure purposes as they are similar in nature to our previously established VIEs. As of June 30, 2022, one conduit facility was terminated and the remaining conduit facility had no outstanding balance. As of December 31, 2021, the conduit facilities had an outstanding balance of $ 133 million. Our unaudited condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following: ($ in millions) June 30, 2022 December 31, 2021 Restricted cash $ 58 $ 62 Timeshare financing receivables, net 856 1,021 Non-recourse debt (1) 1,027 1,195 (1) Net of deferred financing costs. 22 Table of Contents During the three and six months ended June 30, 2022 and 2021, we did not provide any financial or other support to any VIEs that we were not previously contractually required to provide, nor do we intend to provide such support in the future. Note 11: Investments in Unconsolidated Affiliates As of June 30, 2022, we have 25 percent and 50 percent ownership interests in BRE Ace LLC and 1776 Holding LLC, respectively, which are VIEs. We do not consolidate BRE Ace LLC and 1776 Holding LLC because we are not the primary beneficiary. Our investment interests in and equity earned from both VIEs are included in our consolidated balance sheets as Investments in unconsolidated affiliates and in our consolidated statements of operations as Equity in earnings from unconsolidated affiliates , respectively. Our two unconsolidated affiliates have aggregated debt balances of $ 425 million and $ 463 million as of June 30, 2022 and December 31, 2021, respectively. The debt is secured by their assets and is without recourse to us. Our maximum exposure to loss as a result of our investment interests in the two unconsolidated affiliates is primarily limited to (i) the carrying amount of the investments, which totaled $ 66 million and $ 59 million as of June 30, 2022 and December 31, 2021, respectively, and (ii) receivables for commission and other fees earned under fee-for-service arrangements. See Note 19: Related Party Transactions for additional information. Note 12: Intangible Assets Intangible assets and related accumulated amortization were as follows: June 30, 2022 ($ in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade name $ 18 $ ( 11 ) $ 7 Management contracts 1,340 ( 168 ) 1,172 Club member relationships 139 ( 25 ) 114 Capitalized software 152 ( 87 ) 65 $ 1,649 $ ( 291 ) $ 1,358 December 31, 2021 ($ in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Trade name $ 18 $ ( 5 ) $ 13 Management contracts 1,340 ( 106 ) 1,234 Club member relationships 139 ( 12 ) 127 Capitalized software 138 ( 71 ) 67 $ 1,635 $ ( 194 ) $ 1,441 We acquired definite-lived intangible assets as part of the Diamond Acquisition, which have been valued in the amount of $ 1,429 million as of the Acquisition Date. Refer to Note 3: Diamond Acquisition for further details. Amortization expense on intangible assets was $ 49 million and $ 5 million for the three months ended June 30, 2022 and 2021, respectively, and $ 97 million and $ 9 million for the six months ended June 30, 2022 and 2021, respectively. 23 Table of Contents Note 13: Debt & Non-recourse Debt Debt The following table details our outstanding debt balance and its associated interest rates: ($ in millions) June 30, 2022 December 31, 2021 Debt (1) Senior secured credit facility Term loan with a rate of 4.787 %, due 2028 $ 1,290 $ 1,297 Revolver with a rate of 3.500 %, due 2026 175 300 Senior notes with a rate of 5.000 %, due 2029 850 850 Senior notes with a rate of 4.875 %, due 2031 500 500 Other debt 28 27 2,843 2,974 Less: unamortized deferred financing costs and discounts (2)(3) ( 56 ) ( 61 ) $ 2,787 $ 2,913 (1) As of June 30, 2022 and December 31, 2021, weighted-average interest rates were 4.806 % and 4.052 %, respectively. (2) Amount includes unamortized deferred financing costs related to our term loan and senior notes of $ 28 million and $ 21 million, respectively, as of June 30, 2022 and $ 33 million and $ 22 million, respectively, as of December 31, 2021. This amount also includes unamortized original issuance discounts of $ 7 million and $ 6 million as of June 30, 2022 and December 31, 2021, respectively. (3) Amount does not include unamortized deferred financing costs of $ 5 million as of June 30, 2022 and December 31, 2021 related to our revolving facility which are included in Other assets in our unaudited condensed consolidated balance sheets. Senior secured credit facilities During the six months ended June 30, 2022, we repaid $ 132 million under the senior secured credit facilities. As of June 30, 2022, we had $ 1 million of letters of credit outstanding under the revolving credit facility and $ 2 million outstanding backed by cash collateral. We were in compliance with all applicable maintenance and financial covenants and ratios as of June 30, 2022. We primarily use interest rate swaps as part of our interest rate risk management strategy for our variable-rate debt. Such interest rate swaps converted the LIBOR based variable rates on our Revolver and Term Loan to average fixed rates of 0.53 percent per annum with maturities in 2023 and 1.58 percent with maturities between 2023 and 2028, respectively, for the balance on these borrowings up to the notional values of our interest rate swaps. As of June 30, 2022, the notional values of the interest rate swaps under our Revolver and Term Loan were $ 163 million and $ 550 million, respectively. Our interest rate swaps have been designated and qualify as cash flow hedges of interest rate risk and recorded at their estimated fair value as an asset in Other assets in our unaudited condensed consolidated balance sheets. As of June 30, 2022 and December 31, 2021, the estimated fair value of our cash flow hedges are $ 45 million and $ 2 million, respectively. We characterize payments we make in connection with these derivative instruments as interest expense and a reclassification of accumulated other comprehensive income for presentation purposes. The following table reflects the activity in accumulated other comprehensive income related to our derivative instruments during the six months ended June 30, 2022. Net unrealized gain on derivative instruments Balance as of December 31, 2021 $ 2 Other comprehensive income before reclassifications, net 30 Reclassification to net income 2 Balance as of June 30, 2022 $ 34 24 Table of Contents Non-recourse Debt The following table details our outstanding non-recourse debt balance and associated interest rates: ($ in millions) June 30, 2022 December 31, 2021 Non-recourse debt (1) Timeshare Facility with an average rate of 2.35 %, due 2025 (3) $ 1 $ 131 HGV Securitized Debt with a weighted average rate of 2.711 %, due 2028 55 70 HGV Securitized Debt with a weighted average rate of 3.602 %, due 2032 119 143 HGV Securitized Debt with a weighted average rate of 2.431 %, due 2033 122 151 HGV Securitized Debt with a weighted average rate of 4.304 %, due 2034 223 — HGV Securitized Debt with a weighted average rate of 3.658 %, due 2039 163 193 Diamond Resorts Premium Yield Facility with an average rate of 4.766 %, due 2031 — 8 Diamond Resorts Conduit Facility with an average rate of 2.250 %, due 2023 — 125 Diamond Resorts Conduit Facility with an average rate of 3.000 %, due 2024 — 8 Diamond Resorts Owner Trust 2017 with a weighted average rate of 3.504 %, due 2029 — 41 Diamond Resorts Owner Trust 2018 with a weighted average rate of 4.061 %, due 2031 71 92 Diamond Resorts Owner Trust 2019 with a weighted average rate of 3.277 %, due 2032 111 148 Diamond Resorts Owner Trust 2021 with a weighted average rate of 2.160 %, due 2032 168 224 1,033 1,334 Less: unamortized deferred financing costs (2) ( 9 ) ( 6 ) $ 1,024 $ 1,328 (1) As of June 30, 2022 and December 31, 2021, weighted-average interest rates were 3.337 % and 2.876 %, respectively. (2) Amount relates to securitized debt only and does not include unamortized deferred financing costs of $ 2 million and $ 2 million as of June 30, 2022 and December 31, 2021, respectively, relating to our Timeshare Facility included in Other Assets in our unaudited condensed consolidated balance sheets. (3) In connection with the amended and restated Timeshare Facility executed in May 2022, the revolving commitment period of the Timeshare Facility terminates in August 2024, however the repayment maturity date extends 12 months beyond the commitment termination date to August 2025. During the six months ended June 30, 2022, we terminated our conduit facility due in 2024. In April 2022, we completed a securitization of $ 246 million of gross timeshare financing receivables and issued approximately $ 107 million of 3.61 percent notes, $ 84 million of 4.10 percent notes, $ 22 million of 4.69 percent notes, and $ 33 million of 6.79 percent notes due June 2034. The securitized debt is backed by pledged assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on timeshare interest and temporarily by a $ 34 million cash deposit. The securitized debt is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the debt. The proceeds were primarily used to pay down the remaining borrowings on our conduit facility and general corporate operating expenses. In connection with the securitization, we incurred $ 4 million in debt issuance costs. The Timeshare Facility is a non-recourse obligation payable solely from the pool of timeshare financing receivables pledged as collateral and related assets. In May 2022, we Amended and Restated our Timeshare Facility agreement under new terms, which include increasing the borrowing capacity from $ 450 million to $ 750 million, allowing us to borrow up to the maximum amount until May 2024 and requiring all amounts borrowed to be repaid in 2025. In connection with the amendment, we incurred $ 3 million in debt issuance costs. In addition to our Timeshare Facility, we have access to one additional conduit facility, which is a non-recourse obligation with customary provisions similar in nature to the Timeshare Facility. The conduit facility bears a variable interest rate plus a margin and is subject to non-use fees. The conduit facility is due in 2023 and has a borrowing capacity of $ 125 million. This conduit facility is issued through a variable interest entity. See Note 10: Consolidated Variable Interest Entities for more information. We are required to deposit payments received from customers on the timeshare financing receivables securing the Timeshare Facility and Securitized Debt into depository accounts maintained by third parties. On a monthly basis, the depository accounts are utilized to make required principal, interest and other payments due under the respective loan 25 Table of Contents agreements. The balances in the depository accounts were $ 63 million and $ 67 million as of June 30, 2022 and December 31, 2021, respectively, and were included in Restricted cash in our unaudited condensed consolidated balance sheets. Debt Maturities The contractual maturities of our debt and non-recourse debt as of June 30, 2022 were as follows: ($ in millions) Debt Non-recourse Debt Total Year 2022 (remaining) $ 9 $ 318 $ 327 2023 15 317 332 2024 14 117 131 2025 13 158 171 2026 188 84 272 Thereafter 2,604 39 2,643 $ 2,843 $ 1,033 $ 3,876 Note 14: Fair Value Measurements The carrying amounts and estimated fair values of our financial assets and liabilities were as follows: June 30, 2022 Hierarchy Level ($ in millions) Carrying Amount Level 1 Level 3 Assets: Timeshare financing receivables, net (1) $ 1,689 $ — $ 1,799 Liabilities: Debt, net (2) 2,787 2,321 212 Non-recourse debt, net (2) 1,024 1,000 — December 31, 2021 Hierarchy Level ($ in millions) Carrying Amount Level 1 Level 3 Assets: Timeshare financing receivables, net (1) $ 1,747 $ — $ 1,905 Liabilities: Debt, net (2) 2,913 2,663 340 Non-recourse debt, net (2) 1,328 1,080 270 (1) Carrying amount net of allowance for financing receivables losses. (2) Carrying amount net of unamortized deferred financing costs and discount. Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values. The table above excludes cash and cash equivalents, restricted cash, accounts receivable, accounts payable, advance deposits and accrued liabilities, all of which had fair values approximating their carrying amounts due to the short maturities and liquidity of these instruments. Our estimated fair value of derivative financial instruments is considered a level 2 measurement and is included in Note 13: Debt and non-recourse debt above. Our valuation methodology is categorized 26 Table of Contents based on each asset or liability's respective measurement inputs and their correlation to information available in active markets as follows: • Level 1 - Measurements based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. • Level 2 - Measurements based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or market data other than quoted prices that are observable. • Level 3 - Measurements based on unobservable data that are supported by little or no market activity and are significant to the valuation methodology. T he estimated fair values of our originated and acquired timeshare financing receivables were determined using a discounted cash flow model. Our model incorporates default rates, coupon rates, credit quality and loan terms respective to the portfolio based on current market assumptions for similar types of arrangements. The estimated fair value of our level 2 derivative financial instruments was determined utilizing projected future cash flows discounted based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The estimated fair value of our level 3 debt was determined utilizing indicative quotes obtained for similar issuances and projected future cash flows discounted at risk-adjusted rates. The estimated fair value of our level 3 non-recourse debt was determined utilizing projected future cash flows discounted at risk-adjusted rates. Note 15: Leases We lease sales centers, office space and equipment under operating leases, some of which we acquired as part of the Diamond Acquisition. Our leases expire at various dates from 2022 through 2030, with varying renewal and termination options. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As part of our integration of business operations from the Diamond Acquisition, we ceased utilizing one leased office space in the three months ended March 31, 2022 and one additional office space in the three months ended June 30, 2022, both of which the Company considered to be a triggering event for impairment analysis. We recognized impairment expenses on the related right-of-use assets of $ 3 million and $ 6 million in the three and six months ended June 30, 2022, respectively. We recognize rent expense on leases with both contingent and non-contingent lease payment terms. Rent associated with non-contingent lease payments are recognized on a straight-line basis over the lease term. Rent expense for all operating leases for the three months ended June 30, 2022 and 2021, was $ 8 million and $ 5 million, and $ 15 million and $ 9 million, for the six months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022 and 2021, these amounts included $ 2 million and $ 1 million, of short-term and variable lease costs, and for the six months ended June 30, 2022 and 2021, $ 2 million and $ 2 million, respectively. Supplemental cash flow information related to operating leases was as follows: Six Months Ended June 30, ($ in millions) 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 13 $ 9 Right-of-use assets obtained in exchange for new lease liabilities: Operating leases 2 — 27 Table of Contents Supplemental balance sheet information related to operating leases was as follows: June 30, 2022 December 31, 2021 Weighted-average remaining lease term of operating leases (in years) 4 4 Weighted-average discount rate of operating leases 4.38 % 4.35 % The future minimum lease payments under non-cancelable operating leases, due in each of the next five years and thereafter as of June 30, 2022, are as follows: ($ in millions) Operating Leases Year 2022 (remaining) $ 13 2023 26 2024 18 2025 15 2026 10 Thereafter 6 Total future minimum lease payments $ 88 Less: imputed interest ( 8 ) Present value of lease liabilities $ 80 Note 16: Income Taxes The effective tax rate for the six months ended June 30, 2022 and 2021 was approximately 33 percent and 300 percent, respectively. The effective tax rate is lower primarily due to the impact of non-recurring discrete items and share-based compensation awards relative to pre-tax income (loss) through the second quarter of 2022 as compared to the second quarter of 2021. The difference between our effective tax rate as compared to the U.S. statutory federal tax rate of 21% is primarily due to the impact of state and foreign income taxes, as well as the aforementioned discrete items. Note 17: Share-Based Compensation Stock Plan We issue service-based restricted stock units (“Service RSUs”), service and performance-based restricted stock units (“Performance RSUs”) and nonqualified stock options (“Options”) to certain employees and directors. We recognized share-based compensation expense of $ 15 million and $ 14 million for the three months ended June 30, 2022 and 2021, respectively, and $ 26 million and $ 18 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, unrecognized compensation costs for unvested awards was approximately $ 57 million, which is expected to be recognized over a weighted average period of 1.9 years. As of June 30, 2022, there were 2,649,317 shares of common stock available for future issuance under this plan. Service RSUs During the six months ended June 30, 2022, we issued 793,561 Service RSUs with a grant date fair value of $ 44.18 , which generally vest in equal annual installments over three years from the date of grant. Options During the six months ended June 30, 2022 , we issued 389,536 Options with an exercise price of $ 44.09 , which generally vest over three years from the date of the grant. The weighted-average grant date fair value of these options was $ 20.08 , which was determined using the Black-Scholes-Merton option-pricing model with the assumptions included in the table below. Expected volatility is calculated using our historical and implied volatility of our share price. Dividend yield is calculated based on our expected future 28 Table of Contents payout at the time of issuance. Risk-free rate is based on the yields of U.S. Department of Treasury instruments with similar maturities. Expected term is estimated using the vesting period and contractual term of the Options. Expected volatility 45.8 % Dividend yield — % Risk-free rate 1.7 % Expected term (in years) 6.0 As of June 30, 2022, we had 1,544,120 Options outstanding that were exercisable. Performance RSUs During the three and six months ended June 30, 2022, we issued 93,064 Performance RSUs with a grant date fair value of $ 44.09 . The Performance RSUs are settled at the end of a two-year performance period, with 50 percent of the Performance RSUs subject to achievement based on the Company’s adjusted earnings before interest expense, taxes and depreciation and amortization further adjusted for net deferral and recognition of revenues and related direct expenses related to sales of VOIs of projects under construction. The remaining 50 percent of the Performance RSUs are subject to the achievement of certain contract sales targets. We determined that the performance conditions for our Performance RSUs are probable of achievement and, for the three and six months ended June 30, 2022, we recognized compensation expense based on the number of Performance RSUs we expect to vest. Employee Stock Purchase Plan In March 2017, the Board of Directors adopted the Hilton Grand Vacations Inc. Employee Stock Purchase Plan (the “ESPP”), which became effective during 2017. In connection with the ESPP, we issued 2.5 million shares of common stock which may be purchased under the ESPP. The ESPP allows eligible employees to purchase shares of our common stock at a price per share not less than 95 percent of the fair market value per share of common stock on the purchase date, up to a maximum threshold established by the plan administrator for the offering period. During the three and six months ended June 30, 2022 and 2021, we recognized less than $ 1 million of compensation expense related to this plan. 29 Table of Contents Note 18: Earnings Per Share The following tables present the calculation of our basic and diluted earnings per share (“EPS”) and the corresponding weighted average shares outstanding referenced in these calculations for the three and six months ended June 30, 2022 and 2021. Three Months Ended June 30, Six Months Ended June 30, ($ and shares outstanding in millions, except per share amounts) 2022 2021 2022 2021 Basic EPS: Numerator: Net income (1) $ 73 $ 9 $ 124 $ 2 Denominator: Weighted average shares outstanding 121 86 120 85 Basic EPS $ 0.60 $ 0.10 $ 1.03 $ 0.02 Diluted EPS: Numerator: Net income (1) $ 73 $ 9 $ 124 $ 2 Denominator: Weighted average shares outstanding 122 87 122 87 Diluted EPS $ 0.60 $ 0.10 $ 1.01 $ 0.02 (1) Net income for the three months ended June 30, 2022 and 2021 was $ 72,931,504 and $ 8,700,776 , respectively, and $ 123,700,348 and $ 1,929,361 for the six months ended June 30, 2022 and 2021, respectively. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Weighted average shares outstanding: Basic EPS 120,810,928 85,650,144 120,398,023 85,479,870 Diluted EPS 122,308,996 86,838,601 122,095,808 86,539,505 The dilutive effect of outstanding share-based compensation awards is reflected in diluted earnings per common share by application of the treasury stock method using average market prices during the period. For the three and six months ended June 30, 2022, we exclud ed 839,347 and 485,808 , respe ctively, and 788,168 and 568,891 for the three and six months ended June 30, 2021, respectively, of share-based compensation awards, because their effect would have been anti-dilutive under the treasury stock method. Note 19: Related Party Transactions BRE Ace LLC and 1776 Holding, LLC We hold a 25 percent ownership interest in BRE Ace LLC, a VIE, which owns a timeshare resort property and related operations, commonly known as “Elara, by Hilton Grand Vacations.” We hold a 50 percent ownership interest in 1776 Holding, LLC, a VIE, which owns a timeshare resort property and related operations, known as “Liberty Place Charleston, by Hilton Club.” We record Equity in earnings from our unconsolidated affiliates in our unaudited condensed consolidated statements of operations. See Note 11: Investments in Unconsolidated Affiliates for additional information. Additionally, we earn commissions and other fees related to fee-for-service agreements with the investees to sell VOIs at Elara, by Hilton Grand Vacations and Liberty Place Charleston, by Hilton Club. These amounts are summarized in the following table and are included in Sales, marketing, brand, and other fees on our unaudited condensed consolidated statements of operations as of the date they became related parties. 30 Table of Contents We also had $ 35 million and $ 20 million of outstanding receivables related to the fee-for-service agreements included in Accounts receivable, net on our unaudited condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively. Three Months Ended June 30, Six Months Ended June 30, ($ in millions) 2022 2021 2022 2021 Equity in earnings from unconsolidated affiliates $ 4 $ 4 $ 7 $ 6 Commissions and other fees 47 24 81 37 Note 20: Business Segments We operate our business through the following two segments: • Real estate sales and financing – We market and sell VOIs that we own. We also source VOIs through fee-for-service agreements with third-party developers. Related to the sales of the VOIs that we own, we provide consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of VOIs and revenue from servicing the loans. We also generate fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs. • Resort operations and club management – We manage the Club and Diamond Clubs and earn activation fees, annual dues and transaction fees from member exchanges for other vacation products. We also earn fees for managing the timeshare properties. We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our Club and Diamond Clubs programs. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties. The performance of our operating segments is evaluated primarily based on adjusted earnings before interest expense (excluding non-recourse debt), taxes, depreciation and amortization (“EBITDA”). We define Adjusted EBITDA as EBITDA, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) other gains, including asset dispositions and foreign currency transactions; (ii) debt restructurings/retirements; (iii) non-cash impairment losses; (iv) share-based and other compensation expenses; and (v) other items, including but not limited to costs associated with acquisitions, restructuring, amortization of premiums resulting from purchase accounting, and other non-cash and one-time charges. We do not include equity in earnings (losses) from unconsolidated affiliates in our measures of segment operating performance. Below is the presentation of our reportable segment results which include the acquired Diamond operations within both segments since the Acquisition Date. The following table presents revenues for our reportable segments reconciled to consolidated amounts: Three Months Ended June 30, Six Months Ended June 30, ($ in millions) 2022 2021 2022 2021 Revenues: Real estate sales and financing $ 586 $ 194 $ 1,038 $ 317 Resort operations and club management (1) 303 107 571 187 Total segment revenues 889 301 1,609 504 Cost reimbursements 67 38 133 73 Intersegment eliminations (1)(2) ( 8 ) ( 5 ) ( 15 ) ( 8 ) Total revenues $ 948 $ 334 $ 1,727 $ 569 (1) Includes charges to the real estate sales and financing segment from the resort operations and club management segment for fulfillment of discounted marking package stays at resorts. These charges totaled $ 8 million and $ 5 million for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, these charges totaled $ 15 million and $ 8 million, respectively. (2) Includes charges to the real estate sales and financing segment from the resort operations and club management segment for the rental of model units to show prospective buyers. These charges totaled less than $ 1 million for the three and six months ended June 30, 2022 and 2021. 31 Table of Contents The following table presents Adjusted EBITDA for our reportable segments reconciled to net income (loss): Three Months Ended June 30, Six Months Ended June 30, ($ in millions) 2022 2021 2022 2021 Adjusted EBITDA: Real estate sales and financing (1) $ 218 $ 45 $ 371 $ 72 Resort operations and club management (1) 119 61 220 103 Segment Adjusted EBITDA 337 106 591 175 Acquisition and integration-related expense ( 17 ) ( 14 ) ( 30 ) ( 29 ) General and administrative ( 66 ) ( 30 ) ( 108 ) ( 51 ) Depreciation and amortization ( 64 ) ( 12 ) ( 124 ) ( 23 ) License fee expense ( 32 ) ( 19 ) ( 57 ) ( 33 ) Other loss, net ( 2 ) ( 1 ) ( 1 ) ( 2 ) Interest expense ( 35 ) ( 17 ) ( 68 ) ( 32 ) Income tax (expense) benefit ( 41 ) ( 3 ) ( 61 ) 3 Equity in earnings from unconsolidated affiliates 4 4 7 6 Impairment reversal (expense) 3 — — ( 1 ) Other adjustment items (2) ( 14 ) ( 5 ) ( 25 ) ( 11 ) Net income $ 73 $ 9 $ 124 $ 2 (1) Includes intersegment transactions. Refer to our table presenting revenues by reportable segment above for additional discussion. (2) For the three and six months ended June 30, 2022 and 2021, this amount includes costs associated with restructuring, one-time charges and other non-cash items included within our reportable segments. Note 21: Commitments and Contingencies Commitments We have entered into certain arrangements with developers whereby we have committed to purchase vacation ownership units or other real estate at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of June 30, 2022, we were committed to purchase approximately $ 271 million of inventory and land over a period of 9 years and $ 14 million of other commitments in the normal course of business. Additionally, we have committed to develop additional vacation ownership units at an existing resort in Japan. We are also committed to an agreement to exchange parcels of land in Hawaii, subject to the successful completion of zoning, land use requirements and other applicable regulatory requirements. The actual amount and timing of the acquisitions are subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. During the six months ended June 30, 2022, we fulfilled $ 47 million of purchases required under our inventory commitments. During the six months ended June 30, 2021 we completed $ 18 million of purchases required under our inventory-related purchase commitments. As of June 30, 2022, our remaining obligations pursuant to these arrangements were expected to be incurred as follows: ($ in millions) 2022 (remaining) 2023 2024 2025 2026 Thereafter Total Inventory purchase obligations $ 1 $ 216 $ 39 $ 3 $ 3 $ 9 $ 271 Other commitments (1) 7 7 — — — — 14 Total $ 8 $ 223 $ 39 $ 3 $ 3 $ 9 $ 285 (1) Primarily relates to commitments related to information technology and sponsorships. Rebranding Costs As part of the Diamond Acquisition and per our licensing agreement with Hilton, we are committed to rebranding Diamond properties to brands that meet Hilton standards. We are currently rebranding related to our resorts and sales centers and expect rebranding to occur over a period of several years. 32 Table of Contents Litigation Contingencies We are involved in litigation arising from the normal course of business, some of which include claims for substantial sums. We evaluate these legal proceedings and claims at each balance sheet date to determine the degree of probability of an unfavorable outcome and, when it is probable that a liability has been incurred, our ability to reasonably estimate the amount of loss. We record a contingent litigation liability when it is determined that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. As of June 30, 2022, we accrued liabilities of approximately $ 120 million for all legal matters that were contingencies. Substantially all of these accrued liabilities are related to matters that existed as of the Acquisition Date, of which approximately $ 24 million are subject to change during the measurement period of the Diamond Acquisition. See Note 3: Diamond Acquisition . Approximately $ 93 million of these accrued liabilities relate to a judgment entered against Diamond in March 2022 in connection with a case filed in 2015 that was not deemed probable and estimable as of the Acquisition Date. This matter is subject to insurance coverage and as a result as of June 30, 2022, we recorded an insurance claim receivable of $ 79 million within Accounts receivable, net in our unaudited condensed consolidated balance sheet and a $ 14 million charge to our unaudited condensed consolidated statement of operations during the quarter ended June 30, 2022 that represents the amount of the settlement liability not deemed probable of recovery from the insurance carriers. While we currently believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial condition, cash flows, or materially adversely affect overall trends in our results of operations, legal proceedings are inherently uncertain and unfavorable rulings could, individually or in aggregate, have a material adverse effect on the Company’s business, financial condition or results of operations. Note 22: Subsequent Events Management has evaluated all subsequent events through August 9, 2022, the date the unaudited condensed consolidated financial statements were available to be issued. The results of management’s analysis indicated no significant subsequent events have occurred that required consideration or adjustments to our disclosures in the unaudited financial statements.